U.K. Manufacturing, Construction Point to Loss of Momentum

  • Building firms, factories unexpectedly cut output in February
  • Trade on course to act as drag on growth in the first quarter

U.K. manufacturing and construction unexpectedly shrank in February, adding to signs that the economy lost momentum in the first quarter.

Factory output fell 0.1 percent from January, the Office for National Statistics said on Friday. Total industrial production declined 0.7 percent as unseasonably warm weather reduced demand for energy. Construction dropped 1.7 percent, the most in almost a year.

While industrial output and construction are still likely to contribute modestly to growth in the first quarter, the economy will get no help from trade, which drove the expansion in the final period of 2016. The National Institute of Economic and Social Research estimates that gross domestic product rose 0.5 percent in the first quarter, down from 0.7 percent at the end of 2016.

The deficit in goods and services grew to 3.66 billion pounds ($4.55 billion) in February, according to the ONS, meaning the shortfall will widen in the first quarter unless March posts a near-unprecedented surplus.

Exports fell 0.1 percent in February and imports rose 1.2 percent, although the latter was boosted by shipments of non-monetary gold and aircraft. Excluding erratic items, imports fell 1.7 percent, and the deficit narrowed slightly.

The fall in manufacturing was the second in succession, casting doubt on the benefits firms are getting from the weaker pound. Only seven of 13 sub-sectors posted increases in February. Pharmaceuticals, which tend to fluctuate from month to month, dropped 4.4 percent.

The decline in construction followed a flat January, with a sharp drop in new work being only partially offset by repair and maintenance. Together, building output and industrial production account for a fifth of the U.K. economy.

The figures come against a deteriorating backdrop as accelerating inflation erodes the purchasing power of consumers and looming Brexit talks cloud the outlook for investment. Bank of England policy maker Gertjan Vlieghe indicated this week he is in no hurry to demand an end to record-low interest rates.

Key to the first quarter will be the performance of the dominant services sector, which is continuing to expand at a healthy pace if recent surveys are an accurate guide.

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